Oil Paranoia

WASHINGTON — Senate Majority Leader Harry Reid, back from the Fourth of July break, last week delivered a typical harangue on Republican obstructionism and Democratic virtue that included a promise: By week’s end, he would show Republicans his proposal to deal with "this speculation thing" that he calls the root cause of $4-a-gallon gasoline. It would attempt "to end speculation on the oil markets."

By week’s end Friday, Republicans had seen nothing of Reid’s plan because of internal Democratic disagreement on details. But plenty of other Democratic legislative proposals floated around Capitol Hill claiming to resolve the nation’s gasoline woes by regulating oil futures trading. The claims are extravagant that these bills would dramatically lower prices at the gas pump, which lawmakers agree is the overriding concern of their constituents.

After consulting a wide variety of experts on both energy and markets, I could find nobody who sees speculation as a major contributor to the oil spike. The problem is massive global demand overpowering a finite supply, aggravated by uncertainty about oil supplies in the Middle East, Nigeria and Venezuela. But the image of evil men on Wall Street manipulating oil prices fits, to borrow the trenchant phrase of the late historian Richard Hofstadter, "the paranoid style" in dealing with the current crisis.

In a fortuitous coincidence, Hofstadter’s 1965 book, "The Paranoid Style in American Politics," was reissued as a paperback last month. He described the paranoid politician viewing his adversary as "sinister, ubiquitous, powerful, cruel, sensual, and luxury-loving." As a liberal, Hofstadter was writing about Barry Goldwater’s 1964 takeover of the Republican Party but acknowledged that the syndrome "is not necessarily right-wing."

A current embodiment can be found in Rep. Bart Stupak, a former Michigan state trooper, in his 16th year of representing his state’s Upper Peninsula. A centrist Democrat, he is what Speaker Sam Rayburn once referred to as a "workhorse" rather than a "showhorse." As chairman of the Energy and Commerce Committee’s Oversight and Investigations Subcommittee, he has made "excessive speculation in the energy markets" his signature issue the last three years.

Stupak has introduced bills tilting at the speculative windmill with all manner of tight federal regulation over commodities markets. Testifying before the House Agriculture Committee last Wednesday about this need, he rejected supply and demand as pushing up oil prices.

The star witness before Stupak’s committee two weeks earlier was Michael W. Masters, a hedge fund operator headquartered in Christiansted, Virgin Islands. Hardly anybody had heard of him before he appeared before Congress beginning May 20 to sing songs Democrats wanted to hear. He told Stupak’s subcommittee’s June 23 hearing that federal regulation would drop the price of oil from $65 to $70 a barrel in a month — a claim viewed as preposterous by economists I consulted. While Masters swore his firm does not deal in oil futures, BusinessWeek reported June 27 that he "has a keen financial interest in lower oil prices" because of his portfolio’s heavy stakes in airlines and autos.

The dominant figure of Stupak’s hearing, however, was his mentor and model in paranoid politics: the full Energy and Commerce chairman, Rep. John Dingell, senior member of Congress in his 27th term from the Detroit area. Just shy of his 82nd birthday, he showed he had lost none of the legendary use of sarcasm and invective in questioning Republican government officials.

Dingell told his cross-examination target, Walter Lukken, a former Republican Senate aide who is acting chairman of the Commodity Futures Trading Commission (CFTC), that he was "twiddling your thumbs" in not regulating "those good-hearted folks up there in New York who are running this wonderful, speculated enterprise." He concluded: "Now we find that these good-hearted folks in the futures market have figured how … to screw the farmers and the consumers in the city … on a whole new product: oil."

Why did Lukken, who surely knows better, not rebut that? For the reason that the kid kicked around in the schoolyard by a bully does not hit back: for fear of inviting more abuse. But Harry Reid has not yet achieved Democratic agreement on a bill, and Bart Stupak’s legislative panacea for cutting oil prices by $30 a barrel remains stalled in committee. The paranoid style is hard to turn into action.